This audio is automatically generated. Please let us know if you have any comments.
Dive brief:
- National non-residential Construction spending rose 0.1% in October on a seasonally adjusted annualized basis of $1.1 trillion, according to a new analysis by Associated Builders and Contractors.
- The marginal gain marks the 17th consecutive month of growth, mainly due to activity in both the manufacturing sector and infrastructure-related projects, said Anirban Basu, ABC’s chief economist. But spending in the commercial segment, which includes distribution centers and warehouses, fell sharply, he said. The sector fell by 1.5%, the largest decline of any category.
- “Non-residential construction spending rose for the 17th consecutive month in October and is now up as much as 20% over the past year,” Basu said. “Despite weakness in the commercial category and other headwinds such as high interest rates and labor shortages, contractors remain optimistic about their sales over the next six months.”
Diving knowledge:
The varied activity levels within the categories suggest the construction market is changingbut remains strong overall, according to a separate analysis of spending trends by the Associated General Contractors of America.
Spending on manufacturing plants, the largest non-residential segment, rose 0.9% in October, according to AGC. Meanwhile, spending on highways and streets, the second-largest non-residential segment, fell 0.4 percent in October, the report said.
AGC officials said the decline in highway and street construction stems in part from the recently enacted by the Biden administration. reforms to the federal authorization process. They say many state and local officials are struggling to keep up of the administration Rules for Build America, Buy Americafor example.
“It’s clear that the overall construction market remains healthy,” said Ken Simonson, AGC’s chief economist. “But a rotation is occurring among the non-residential segments as manufacturing construction expands while commercial construction slumps and spending on highways and streets stagnates.”
Commercial construction, which includes warehouse and retail projects, fell 1.5% in October from a month ago, the AGC report said. This is likely due to a sharp slowdown in the freight industry and slow construction related to the warehouse rather than a sudden drop in retail-related construction, Basu said.
But while the commercial and highways and streets sectors were down for the month, they were still up 5.3% and 12.7% respectively over the past 12 months.
This explains why this slowdown in commercial projects has not yet affected the general optimism of the construction sector. Even with high material costs and persistent labor shortages, most contractors still expect profit margins to increase over the next six months, Basu said.
Spending increased monthly in 8 of 16 non-residential subcategories, including manufacturing, power and education projects, according to ABC. Private non-residential spending rose 0.1% in October, while public spending on non-residential construction rose 0.2%.
